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In the FRA agreement example the difference is setteled with the bank at the start of the loan and interest would be payble at the end.
For loans with longer time periods the difference in timing might have a significant effect, would we have to take into account this when calculating the effective interest? Or is it unlikely to be asked of us in the exam?
@htung00, That is usually the case (settle at the beginning and interest at the end) but it really depends on the agreement with the bank. It is unlikely to be relevant in the exam (it never has been!) but it would be good to mention it if you get the chance.
Sir, pls can u explain why we didnot calculate IRG for the interest rate of 8%.
@sheda100, You can have the answer in the video lecture.
since IRG is an arrangement with the bank whereby the bank fix a maximum interest rate, therefore the company could enjoy the actual low interest payment but with a premium payment indeed all time, like a option scheme.
Yes – it is just like an option.
Sir, you have told that you will tell the reason why to divide always by 400 when calculating premium. Can you please explain why to do so ?
@Saline, It is explained in the next lecture i believe. ” intrest rate futures 1 “
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